When planning your vacation be sure to familiarize yourself with the business travel rules to see if you can qualify some of your costs as business expenses. HOW TO DEDUCT YOUR VACATION TRAVEL As A Business Expense Taking a vacation can be expensive, so naturally the idea of deducting your vacation expenses on your tax return is an appealing idea. However, before you get carried away planning a lavish vacation with the hopes of writing off the entire cost, make sure to familiarize yourself with the requirements to qualify your expenses as business travel. To qualify for a tax deduction the trip needs to serve a legitimate business purpose. Handing out business cards on the beach does not count. There are 5 criteria your trip must meet to be a qualified business expense: 1. Profit motive. The trip must serve a legitimate profit motive. This means that you can reasonably expect the trip to create profit either now or at some point in the future. 2. Stay overnight. You can only deduct meal and lodging expenses when you are away from home overnight. 3. “Rational Businessperson” test. Your trip will only qualify as a business expense if the business motive is strong enough that a rational businessperson would make the trip if business was the only motive. 4. Primary purpose test. You can only deduct your travel expenses when your trip is primarily for business. This is determined by calculating the number of business days vs personal days of the trip. This may sound like a deal breaker, but it is easier to meet this requirement than you think. 5. Maintain good records. If you do not properly document the business purpose of your trip, your travel expenses, or your actual business activities on the trip you will risk losing your entire deduction. Your trip expenses can be broken down into two general categories with different requirements to be deductible: Transportation Expenses Transportation costs include airfare, train tickets, or the cost of a rental car to get to your destination. These expenses are all-or-nothing, if the majority of your trip days are business days you can deduct all of your transportation costs. If the majority of your trip days are personal you cannot deduct any of these costs. Life Expenses Life expenses include your daily meals and lodging. Unlike transportation expenses you do not need to meet the majority of business days threshold to take life expenses. Instead you simply take the life expenses for each business day of the trip. What Counts as a Business Day? It may be easier than you think to qualify most of your trip as business days. Each day of the trip only needs to meet one of these criteria to qualify as a business day: Work more than four hours. You have a workday when you spend more than half of normal work hours pursuing business. Since a normal workday is eight hours you only need to work for more than four. Presence-required day. If you are required to be at a destination on a specific day for a legitimate business purpose. For example, if you have a meeting with a client in another city on Tuesday, then Tuesday qualifies as a business day even if that is your only business activity for that day. Travel day. Days you spend traveling to or from your business destination count as business days as long as you are traveling in a reasonably direct route. Weekends and holidays. If a weekend or holiday falls in between two business days you can count those days as business days as long as it would not be practical to return home in between the two business days. If you live in California and have meetings in New York on Friday and Monday, it would not be practical to return to California for the weekend. Therefore, all four days count as business days. Saved-money-on-travel days. If you arrive at a destination a day early or leave a day late in order to save on your travel expenses you can count the extra day as a business expense as it served a legitimate business purpose of reducing your travel costs. Summary The rules governing business travel allow for some freedom to deduct vacation time as business expenses, but do not provide a blank check to write off an entire vacation simply because you spent a few minutes discussing business. You need to find the right balance between work and relaxation, properly document your work activities, and maintain records of all your expenses.

SMALL BUSINESS TIPS DEDUCT YOUR MEDICAL EXPENSES BY HIRING YOUR SPOUSE What Business Types Qualify? This option is available to you if you operate your business as one of the following: A sole proprietorship A partnership (provided your spouse is not a partner in the business) An LLC taxed as a sole proprietorship or partnership A real estate rental business A farm business If your business is organized as an S-Corporation than this option will not be available to you. While insurance premiums and out-of-pocket medical expenses can be deducted as itemized deductions , the limitations placed on those deductions make it difficult to realize any actual benefit. However, if you operate your own business, you may be able to get around these limitations by hiring your spouse and paying them through tax-free fringe benefits, including reimbursing them for medical expenses and insurance premiums. How Does This Work? Hire Your Spouse: Your spouse needs to be operating as a real employee for the business, performing services at your direction that benefit the business. Your spouse should not be a co-owner of the business and should not have any title in the business assets or control over the business bank account. To substantiate their role as an employee your spouse should keep a timesheet to document the hours that they worked and the tasks that they completed. Don’t Pay Cash Wages: If you pay your spouse cash wages for working in your business you are simply moving money around without creating any tax savings. In fact, you are likely increasing your tax burden by converting qualified business income to non-qualified wage income. Instead of paying them cash wages you can compensate them through tax-free employee benefits which can provide you with a sizeable tax break and avoid the need to file payroll tax returns. Establish a Medical Reimbursement Arrangement: A medical reimbursement arrangement allows you to compensate your spouse for their work by reimbursing out-of-pocket medical expenses and health insurance premiums. This provides the business with tax-deductible compensation expenses and tax-free income to your spouse. If your spouse is your only employee, you can easily establish a 105-HRA plan to reimburse them for their medical expenses by signing an agreement between yourself and your spouse. If you have additional employees you will need to establish an ICHRA plan, which has additional requirements. If you have multiple employees and want to establish a medical reimbursement arrangement, please reach out to us for more guidance. To qualify the insurance premiums for reimbursement your spouse should purchase a health insurance plan in their name that covers the entire family (including you). Then you, as the employer, reimburse your spouse for the premiums. The reimbursement arrangement can also be used to reimburse your spouse for any out-of-pocket expenses that the insurance doesn’t cover, including deductibles, copays, and prescriptions for your entire family. Pay a Reasonable Amount: To make sure the employee benefits you pay your spouse can withstand IRS scrutiny, make sure that the amount they are compensated is reasonable for the work that they are performing. A good rule of thumb is not to compensate your spouse more than you would compensate someone else for those same services. Consider Other Fringe Benefits: While health insurance and medical expenses are typically the largest items you can provide to your spouse as employee benefits, there are other benefits that you may also be able to provide: Education. You can reimburse your spouse for job-related education expenses Life Insurance. You can provide your employees with up to $50,000 in group term life insurance coverage Working Condition Fringe Benefits. You can reimburse your spouse employee for expenses that help them do their job. For example, you can reimburse the cost of a cell phone they use for work and they are not required to track how much of their phone use is for business. Summary Hiring your spouse to work for your business can provide some meaningful tax benefits by allowing you to deduct personal expenses that otherwise would not be deductible. To qualify for these deductions, you need to follow some simple guidelines: make sure your spouse is operating as your bona fide employee establish a formal medical reimbursement arrangement compensate fairly for the services provided If you would like assistance establishing a medical reimbursement plan for your spouse or other employees, please give us a call.

When planning your vacation be sure to familiarize yourself with the business travel rules to see if you can qualify some of your costs as business expenses. HOW TO DEDUCT YOUR VACATION TRAVEL AS A BUSINESS EXPENSE Taking a vacation can be expensive, so naturally the idea of deducting your vacation expenses on your tax return is an appealing idea. However, before you get carried away planning a lavish vacation with the hopes of writing off the entire cost, make sure to familiarize yourself with the requirements to qualify your expenses as business travel. To qualify for a tax deduction the trip needs to serve a legitimate business purpose. Handing out business cards on the beach does not count. There are 5 criteria your trip must meet to be a qualified business expense: Profit motive. The trip must serve a legitimate profit motive. This means that you can reasonably expect the trip to create profit either now or at some point in the future. Stay overnight . You can only deduct meal and lodging expenses when you are away from home overnight. “Rational Businessperson” test. Your trip will only qualify as a business expense if the business motive is strong enough that a rational businessperson would make the trip if business was the only motive. Primary purpose test. You can only deduct your travel expenses when your trip is primarily for business. This is determined by calculating the number of business days vs personal days of the trip. This may sound like a deal breaker, but it is easier to meet this requirement than you think. Maintain good records. If you do not properly document the business purpose of your trip, your travel expenses, or your actual business activities on the trip you will risk losing your entire deduction. Your trip expenses can be broken down into two general categories with different requirements to be deductible: Transportation Expenses Transportation costs include airfare, train tickets, or the cost of a rental car to get to your destination. These expenses are all-or-nothing, if the majority of your trip days are business days you can deduct all of your transportation costs. If the majority of your trip days are personal you cannot deduct any of these costs. Life Expenses Life expenses include your daily meals and lodging. Unlike transportation expenses you do not need to meet the majority of business days threshold to take life expenses. Instead you simply take the life expenses for each business day of the trip. What Counts as a Business Day? It may be easier than you think to qualify most of your trip as business days. Each day of the trip only needs to meet one of these criteria to qualify as a business day: Work more than four hours. You have a workday when you spend more than half of normal work hours pursuing business. Since a normal workday is eight hours you only need to work for more than four. Presence-required day. If you are required to be at a destination on a specific day for a legitimate business purpose. For example, if you have a meeting with a client in another city on Tuesday, then Tuesday qualifies as a business day even if that is your only business activity for that day. Travel day. Days you spend traveling to or from your business destination count as business days as long as you are traveling in a reasonably direct route. Weekends and holidays. If a weekend or holiday falls in between two business days you can count those days as business days as long as it would not be practical to return home in between the two business days. If you live in California and have meetings in New York on Friday and Monday, it would not be practical to return to California for the weekend. Therefore, all four days count as business days. Saved-money-on-travel days. If you arrive at a destination a day early or leave a day late in order to save on your travel expenses you can count the extra day as a business expense as it served a legitimate business purpose of reducing your travel costs. Summary The rules governing business travel allow for some freedom to deduct vacation time as business expenses, but do not provide a blank check to write off an entire vacation simply because you spent a few minutes discussing business. You need to find the right balance between work and relaxation, properly document your work activities, and maintain records of all your expenses. Are you overpaying on your taxes? Schedule a free review of your last 3 years of tax returns!

SMALL BUSINESS TIPS NEW PROVISIONS FOR THE PAYCHECK PROTECTION PROGRAM After months of negotiations Congress has come to an agreement on another stimulus package which was signed into law on December 27th. Included in the many provisions in the bill is some welcome relief for small-business owners through enhancements to the Paycheck Protection Program. Deduction for Expenses Paid with Loan Funds When the first round of Paycheck Protection loans were approved by Congress earlier this year it was the intent of Congress that forgiveness of the loans would not create taxable income for the recipients. The IRS, however, had their own interpretation of the law and in May issued a notice stating that any expenses paid using funds from a forgiven PPP loan could not be used as deductions on the recipients tax returns. By disallowing the associated expenses, the IRS in effect made the forgiven loans taxable against the wishes of Congress. This disparity between Congress’ intentions and the IRS’ interpretation of the law was corrected with this new bill which clearly states that no deductions will be denied due to the forgiveness of the PPP loans. By reinstating the deductions for expenses covered with PPP loans Congress has finally made the PPP forgiveness tax-free as originally intended. Second Round of PPP Loans The bill also provides for another round of PPP loans which means small-business owners who either didn’t receive a loan in the first round or have exhausted the funds from their first loan can now apply to receive another. The criteria to qualify for this second round are stricter than they were for the first: Only businesses with 300 or fewer employees are eligible Businesses who received a previous PPP loan must either have already used the full loan or demonstrate that they will use the full loan To be eligible a business must have experienced a drop in revenue of at least 25% in any one quarter of 2020 when compared to that same quarter in 2019. You only need to demonstrate a 25% drop for a single quarter to qualify, but it must be compared to the same quarter of 2019. You cannot compare your third quarter of 2020 to your second quarter of 2019. As with the first round of PPP loans a business must have been in operation as of February 15th 2020 to be eligible for a loan. The deadline to apply for the second round of loans is March 31, 2021. Summary If you received a PPP loan during the first round earlier this year you can now rest assured that your forgiven loan will be fully tax-free. If your business experienced a decline of at least 25% in any quarter in 2020 relative to that same quarter in 2019 you have until March 31st to apply for another PPP loan to cover your expenses.

SMALL BUSINESS TIPS PANDEMIC PROVISION FOR TAX-FREE PAYMENTS TO YOUR EMPLOYEES During a federally declared disaster, such as the COVID-19 pandemic, the tax code allows you to make payments to your employees that are deductible by you, the employer, but not taxable to your employees. If your business is an S-Corporation then you qualify as an employee of the business eligible for these tax-free payments . This provision provides a great limited-time opportunity to pull money out of your business tax-free! These tax-free payments are a provision of Section 139 of the Internal Revenue Code which was passed following the September 11th terrorist attacks. How Does it Work? Normally, payments of cash to your employees are considered taxable income to them by the IRS unless it is to reimburse them for qualified business expenses. Under this provision for disaster relief payments you can reimburse your employees for personal expenses that are incurred because of the disaster as long as they are reasonable and necessary. For the COVID-19 pandemic this can include: Out-of-pocket medical costs not covered by health insurance Expenses for working from home such as a computer, office equipment, supplies & utilities Funeral costs for an employee or an employee’s family member Childcare costs so that your employees can continue to work while children are home from school These are the most common costs that could be reimbursed, but others may qualify for the same tax-free reimbursement if they are reasonable and incurred because of the pandemic. What Does not Qualify? You cannot use this provision as a substitute for your employee’s wages to provide them with tax-free income. In other words, do not reduce an employee’s wages by $1,000 and then reimburse them for a $1,000 medical expense. You can also not reimburse employees for lost wages, or as a form of unemployment compensation. What Should You Do? To take advantage of these tax-free disaster relief payments to your employees we recommend that you put together a written plan for payments that identifies: Starting and ending dates of the program A listing of the expenses you will pay or reimburse The maximum payment per employee A procedure for your employees to request reimbursement We would advise using a form similar to an employee expense report for your employees to request their disaster relief payments. To make things a bit easier, the IRS does not require that your employees provide documentation to support the expenses claimed as long as the amounts are reasonable. Summary With COVID-19 declared a federal disaster, you can take advantage of the disaster relief payment provision of the Internal Revenue Code to provide tax-free payments to your employees to cover their personal expenses that were incurred because of the pandemic. If your business is structured as an S-Corporation you as the owner are considered an employee and can reimburse your personal expenses with tax-free payments from the business. If you would like help determining what expenses are eligible for disaster relief payments or would like guidance on implementing this program for your employees please reach out to us.

One step away to save on your taxes. Schedule a quick 10-minute, no-obligation consultation. AVOID THE HEADACHES and Penalties Associated with 1099 Reporting When a small business hires an employee, there are a number of expenses that are incurred in addition to the hourly wage. This could include the employer-provided benefits, office space, along with the technology and other tools required to do the job. The employer will also have to make required payments and contributions on behalf of employees, including: The employer's share of the employee's Social Security and Medicare taxes, which totals 7.65% of the employee's compensation State unemployment compensation Workers' compensation insurance Depending upon the industry, the additional contributions could increase your payroll costs by 20% to 30% - or more. You can avoid these expenses by hiring an independent contractor to do the same work. The additional contributions could increase your payroll costs by 20% to 30% - or more. However, there are certain requirements that must be followed in order to avoid the headaches and penalties associated with 1099 reporting. WHAT AND WHEN DO I HAVE TO FILE? Businesses are required to report all income to the IRS for its employees and any independent contractors. For employees, a W-2 is required to be filed. Independent contractors on the other hand, get a little more complex. To make matters worse, congress recently passed the Path Act, and moved up the filing deadline for W-2's and certain 1099's. The required date to provide W-2's and 1099's to employees and independent contractors is January 31. The deadline for submitting these forms to the government is also January 31. THREE STRATEGIES TO AVOID 1099 HEADACHES The easiest way to avoid the penalties, and filing headaches caused by issuing 1099's to independent contractors is to structure your business activities to minimize the number you must issue, and prepare them in advance, if you do have to issue them. STRATEGY #1: Choose contractors that operate as corporations. Your business is not required to issue 1099's for payments made to corporations, S corporations, or LLC's that elect corporate status for tax purposes (unless the corporation collects attorney fees or payments for health and medical services). STRATEGY #2: Make payments to independent contractors with a credit card, or a third-party payment network like PayPal. Shift the burden of reporting this income to the credit card company or the third-party network. They are required to report the payments on Form 1099-K. STRATEGY #3: Require the independent contractor to provide you with a W-9 upfront before making any payments to them. Here are the benefits: You will know if a 1099 filing is required, because their business type is disclosed on the W-9. You will know whether an LLC is classified as a corporation for federal tax purposes, and excluded from 1099 reporting. By getting the W-9 upfront, it eliminates the need to chase the contractor down for the required information if you need to file a 1099. Once the contractor is paid, your leverage for getting the information is gone. If an independent contractor refuses to provide you with a taxpayer identification number (TIN), and you pay the contractor more than $600 during the calendar year, then you are required to withhold federal income tax on payments made to that contractor. If you do not withhold, your business owes the tax, and it is on you to prove the contractor paid the tax. Save as PDF

HOW TO GET FORGIVENESS OF YOUR PAYCHECK PROTECTION LOAN Congratulations to those of you who were able to secure a loan through the Paycheck Protection Program. Now that your loan has been secured, proper steps must be taken to get the loan forgiven. Loans made through the PPP program can be forgiven in-part or in-full – meaning you may be obligated to repay 0-100% of the principal balance plus accrued interest on the loan if certain conditions are not satisfied. MAXIMUM FORGIVENESS To be considered for maximum forgiveness, you must meet all of the following conditions: Use the loan in the first eight weeks from the day you received the funds in your bank account. At least 75% of the total loan amount must be used for eligible payroll expenses. No more than 25 percent of the loan amount can be used for other eligible expenses. The other eligible expenses are interest on a commercial mortgage incurred before February 15, 2020, as well as rent and utilities payments under agreements in effect also prior to February 15, 2020. PARTIAL FORGIVENESS The following items could reduce the forgiveness amount or be excluded from forgiveness consideration: Reducing the number of full-time employees during the eight-week period as compared to certain prior periods or decreasing the compensation for any employee making under $100,000 per year (annualized in 2019) by more than 25 percent of the employee’s salary for the most recent full quarter. However, loan forgiveness will not be reduced to the extent the changes to salaries or reductions in full-time employment made between February 15, 2020 and April 26, 2020 are reversed by June 30, 2020. Using funds for non-eligible expenses. Having unused funds after the eight-week period. Paying amounts to an independent contractor or sole proprietor (other than you as the borrower). Providing compensation to employees whose principal place of residence is outside the United States. You will be required to pay back the portion of the loan that is not forgiven. Payments will not be required on the remaining portion of the loan until after six months from the day the loan was first disbursed to you. It is important to note that during those six months interest will continue to accrue at one percent (1%) per year on the outstanding loan amount. You will have two years from disbursement of the loan to repay the remaining principal and interest on the loan in full in accordance with the terms of your Note. You may pay the loan off before two years without penalty. WHAT SHOULD YOU DO NOW? Keep accurate records and documentation of how you spend the loan funds. You will need to submit documentation and certify the expenses you paid with the loan over that eight-week period. You should consult with your lender to find out what documentation they will be requesting to support your expenses. Do your best to pay out at least 75 percent of the loan for eligible payroll expenses over the eight-week period and use the remainder for other eligible expenses. Toward the end of the eight-week period, you will need to reach out to your lender and fill out a forgiveness application. If you have any additional questions on the Paycheck Protection Program please reach out to us.

One step away to save on your taxes. Schedule a quick 10-minute, no-obligation consultation. ARE YOU PROTECTING YOURSELF From Your Corporate Income? While there are potential tax savings with a corporate structure in place, it is critical that the corporation be the entity that actually earned the income. WHAT DOES THAT MEAN? A fundamental principle of tax law is that income is taxed to the entity who earns it; and any attempts to divert the income away from its true earner are not recognized by the IRS. AND WHAT DOES THAT MEAN? It means the corporation (not the business owner) must be the entity that contracts for the services that it will have you (the business owner) provide. It means the corporation needs to be the entity that gets paid (not the business owner) for the services provided. It means the corporation must have control over the income it receives. Once it receives the income, it can then direct it to the business owner via payroll or a shareholder distribution. WHAT ARE THE MAIN TAKEAWAYS HERE? If you have self-employment income, you should consider the potential tax benefits of a corporation At Monotelo, we believe that clients who have self-employment income should consider the potential benefits of structuring their business as a corporation. That is because a corporation can provide asset protection and potential tax benefits that are not available to the self-employed individual who files a Schedule C with their tax return. 1. Have your clients or customers write their check directly to the business. Do not accept checks written to you personally. A check made out to you and signed over to the business puts the business owner at risk of double taxation and penalties. 2. Have the corporation pay you a salary for the services you are providing to the corporation. 3. Make sure that all contracts and agreements with clients are between the client and the corporation, not between the client and the business owner. Save as PDF

SMALL BUSINESS TIPS A SIGNIFICANT NEW TAX DEDUCTION NOW AVAILABLE TO SMALL BUSINESS OWNERS! The Tax Cuts and Jobs Act, signed into law in December of 2017, placed a severe limit on the deduction for state income and property taxes. This limitation, commonly referred to as the SALT (State and local taxes) cap, restricts this deduction to a combined amount of $10,000. For reference, a family in Illinois making $400,000 with $18,000 in property taxes would have combined state income and property taxes of $38,000 but could only deduct the first $10,000. Even if your combined taxes are below the $10,000 level, you are unlikely to realize any actual savings from the deduction since you need to itemize your deductions to do so. To circumvent this restriction, a number of states have passed laws allowing pass-through businesses to elect to be taxed at the business level, rather than the personal level. This election can provide meaningful tax savings to small business owners. How Does this Work? If your business is a partnership or an S-Corporation, it is considered a pass-through business, meaning the business itself is not taxed at the corporate level. Instead, that income is passed through to the owners, who are then responsible for the taxes on the business profits. This is relevant because the SALT cap only applies to individual taxes, not business taxes. By electing to pay tax at the entity level, business owners can now turn their state income taxes into deductible business expenses without needing to itemize and without being subject to the $10,000 SALT cap. Nineteen states have passed laws allowing pass-through businesses (as of 10/8/21) to make an election to be taxed at the business level, including Illinois, Wisconsin, New York and California. We are going to focus today's article on how this provision will work in Illinois, as Illinois’ flat tax rate makes it the most straight forward example. Illinois The bill that created this provision in Illinois was signed at the end of August. We are still waiting on the state to provide more thorough guidance on how businesses will make the election, but here is what we currently know: Passthrough businesses can elect to pay state taxes at the business level for tax years 2021-2025. (The SALT cap is set to expire in 2026). This election will need to be made each year. Once made for a given year, the election cannot be revoked. Starting in 2022, businesses that make this election will need to make quarterly estimated tax payments towards state taxes to avoid penalties. This requirement is waived for 2021 since the first 2 quarterly payment deadlines had already passed before the bill was signed. A business that makes the election will pay a 4.95% tax rate on its net income. The owners of the business will then receive a credit towards their personal taxes equal to the amount of taxes the business paid times their percentage ownership in the business. Should You Make This Election? The decision to make this election will depend on several factors, including the net income of your business, the total taxable income on your personal return, your filing status, and the state you live in. As we mentioned, because Illinois has a flat tax rate, nearly all business owners in Illinois will benefit by making this election, though the extent of that benefit may not always be worth the extra steps. The more income your business generates, the larger the benefit this election will have on you (for Illinois business owners). However, in other states the benefits are less certain due to differing methods of implementing this program. Example In Wisconsin, individual taxes fall into one of four brackets depending on income, with 3.54% being the lowest bracket and 7.65% being the highest bracket. However, businesses making this election in Wisconsin will pay taxes at the fixed corporate rate of 7.9%. As a result, the federal tax savings barely outweigh the increased taxes paid to Wisconsin at lower income levels. See the chart below that illustrates how business owners in different states will benefit from making this election,. As these examples illustrate, the savings for businesses in flat-tax states like Illinois are fairly straightforward. The more income your business generates the larger the potential savings. This is due to the fact that Illinois tax rates do not change when you make this election, they are simply changed from a personal expense to a business expense. On the other hand, there are additional factors at play in Wisconsin. The benefits in Wisconsin are not so obvious until higher income levels. For example, in scenario 5, a married couple in Wisconsin with $250,000 in wages and $500,000 in business profits could reduce their federal taxes by $11,123 while only increasing their Wisconsin taxes by $2,667 resulting in net savings of $8,456. And the benefits only increase as incomes rise. The key takeaway is that the benefits for business owners in states with a flat tax rate (such as Illinois) are straightforward. The more income your business generates, the greater the savings from making this election. For states with bracketed tax rates (such as Wisconsin), the benefit is not as clear. We will need to analyze the impact of making this election on both your federal and state taxes to determine the best course of action. Summary The essential benefit of this strategy is that you can now capture your state income tax payment as a business expense to reduce the taxable income on your federal tax return. If you have $1,000,000 in business income you are likely in the 37% marginal tax bracket. If we push a $50,000 tax bill through your business, we can save you between $14,000 and $19,000 on your federal income tax bill. The SALT cap has been a thorn in taxpayer’s sides for nearly four years. With the passage of these laws in different states, many business owners will now have the ability to work around this cap to deduct their state income taxes against their federal tax liability. The benefit to each individual will depend on your home state, your marital status and your income level. Please reach out to us for help determining if you would benefit from making this election. Schedule a Tax Planning Call

TAX IMPACT OF THE PAYCHECK PROTECTION PROGRAM Small businesses that have their Paycheck Protection Program loans forgiven are likely to lose the deduction on their PPP expenses according to new guidance from the Internal Revenue Service. The wage and business expenses that companies use to qualify for loan forgiveness will not be deductible according to an IRS notice published last Thursday. “This treatment prevents a double tax benefit,” the agency said in the notice. “This conclusion is consistent with prior guidance of the IRS.” The new guidance clarifies a point of confusion in the $670 billion small business loan program to help businesses struggling from the shutdowns caused by the coronavirus. The law states that the forgiven loan will not be taxed as debt forgiveness, but it did not specify whether companies could write off the expenses they covered with the stimulus money. The tax code permits companies to write off business expenses, such as wages, rent and transportation expenses, but generally doesn’t allow write-offs for tax-exempt income. While the ruling adds to the list of challenges that businesses face, it is reasonable for the IRS to tell small businesses that they can’t write off expenses on income that was never taxed in the first place (no double-dip!). It is possible that the deduction for these PPP expenses could be reinstated. Since the IRS issued the notice several senators have spoken out against it stating that it is contrary to the intent of the PPP and that a fix could come in subsequent legislation. However, until such legislation is passed, be aware that you will not be able to deduct any expenses covered with funds from a forgiven PPP loan. Small businesses have reported numerous issues in trying to apply for the funds, which restarted last Monday after the initial round of funding ran out after just 13 days. Round 2 of the program, run by the Small Business Administration, provides funds to cover eight weeks of payroll costs. It is designed to encourage companies to keep their people away from the unemployment line, and fully engaged in the workforce.

Quarterly: Oct 17

Want to file your taxes early? Filing Your Tax Return Early Could Boost Your Next Stimulus Check There are a number of reasons to file your tax return early this year. A quicker refund and reduced risk of tax identity theft are at the top of the list for most people… and for some people, a larger stimulus check! So who should file early and who should wait to file in April? The answer to that question depends on whether there were changes to your family or financial situation last year. That's because the next stimulus check will be based on your 2019 tax return or your 2020 return. And the return that was most recently filed when the IRS starts processing your stimulus payment will likely be the one that they use to determine your benefits. When the IRS calculates the amount of your next stimulus check, they will review your tax filing status, the number of dependents, and your adjusted gross income (your AGI). That information will come from your 2019 or your 2020 tax return. If you file early, they will likely pull that information from your 2020 return. If you file later, they will most likely pull that info from your 2019 return. And that dynamic gives you a little more control over your next stimulus check. The IRS started accepting tax returns last week. The two-week delay in accepting tax returns was due to some unexpected programming that was required after the second round of stimulus checks were authorized. If Congress passes President Biden’s $1.9 trillion budget reconciliation bill, that plan is likely to authorize another round of stimulus checks. Based on most estimates, the IRS is not likely to start processing third-round stimulus checks until the second week of March (or later!). If you expect your 2020 tax return to drive a higher stimulus payment, then you may want to file your 2020 return as soon as possible. That way there's time for it to be processed before the IRS starts sending out stimulus payments. So what things might cause a higher stimulus payment? The following changes might drive a larger stimulus payment from your 2020 tax return: THREE REASONS TO FILE YOUR TAXES EARLY You were married in 2020 You had a baby in 2020 You were claimed as a dependent on a 2019 tax return, but not on anyone's 2020 return Your income was lower in 2020 than it was in 2019 And who might consider waiting to file their 2020 tax return? If your income was higher in 2020 than it was in 2019, you may want to wait until April to file your tax return. If you had a death in your family in 2020, and you have fewer dependents on your 2020 tax return, you may want to wait to file your tax return. If you are losing the ability to claim your child as a dependent due to their age in 2020, you may want to consider waiting to file your tax return. If you got divorced in 2020 the best path is less straightforward. There are several factors that could impact whether you should file early or wait. For additional questions, please reach out to us at info@monotelo.com or call us at 800-961-0298. START YOUR 2020 TAX RETURN Upload your doc's online, and start your return from home. Get started Failing to order your affairs to minimize your tax burden could cost you significant money - so don't wait to take action. If you have additional questions or need some planning help, please reach out to us.